Trust is defined as “a firm belief in the reliability, truth or
ability of someone”. Accounts of how trust is developed vary,
however they involve terms connected to sincerity, such as: honesty,
integrity, credibility, predictability, dependability and
reliability; terms connected to reciprocity, such as: judgement and
fairness; and terms related to charity, such as: benevolence,
goodwill and responsibility (Seppänen et al., 2007:255).
Essentially, the synthesis of the norms sincerity, reciprocity and
charity, can be seen as the basis of trust in commerce and our
argument reduces to: finance relies on trust, which is built on the
three norms. This might be regarded as naïve and trust a nebulous
concept. However Quakerism represented in the names Barclays, Lloyds,
Cooper, Waterhouse and Peat in connection with banking and
accountancy offer testament to its concrete practicality.

The Quakers emerged as a non-conformist Christian sect during the
English Civil War (1642‒1651) and became an important expression of
independent (not Anglican/Episcopalian or Presbyterian) faith during
the Commonwealth. The sect was ‘comfortably bourgeois in character’
and egalitarian, promoting the rights of women and would lead the
Abolitionist movement in the nineteenth century. With the Restoration
of Charles II (1660) the Quakers were suppressed and it was during
the period of persecution during that the Quakers became the dominant
independent church, accounting for around 1% (60,000) of the English
population in 1680.

The growth of Quakerism, while other independent sects founded on
charismatic leaders disappeared, can be explained by how the sect was
organised. Quakerism was distinctive from Anglicanism and
Presbyterianism in rejecting a priesthood (appointed or elected) and
the particular authority of the Bible. To fill the void of dogma, a
system emerged where the central ‘Meeting House’ issued Queries
to individual Meetings on a regular basis,
enquiring about ‘the state of the society’ and posing specific
questions to the congregations. The replies were reviewed and Advices
issued defining Quakerism: doctrine, holding the
community together, was developed in a discursive manner that was
able to react quickly to events (Walvin, 1998:24‒26).

On this basis the “Quaker success story” (Prior and Kirby, 2006;
Roberts, 2003)
in finance was built. It could be that the financial prominence of
the Quakers was a consequence of their ‘Protestant work ethic’
and frugality, which delivered unconsumed surpluses that they were
able to re-invest. However, other Protestant sects were equally
frugal but did not have the disproportionate influence on finance
that the Quakers had.

Being a Quaker meant adhering to the regulations collected in the
Advices,
in return a Quaker businessmen could rely on the support of the whole
community. Quakers were required to account for themselves and to
monitor each other, this lead them to rely on written records that
testified to individuals’ conformity to the Advices
and the development of networks of communities
based on letters and libraries (Prior and Kirby (2006:117‒121);
Walvin (1998:46‒47)).
In business, Quakers were expected to consult with more experienced
‘mentors’ before engaging in activity that required borrowing.
Moreover they were scrupulous, like Antonio, in repaying debts during
a time characterised by high levels of default (Prior and
Kirby (2006:121‒129);
Walvin (1998:55‒57)).

The Quaker commitment to the repayment of debts highlights their
commitment to reciprocity. Sincerity was a consequence of their
doctrine of simplicity. This ranged from simplicity in appearance,
which inhibited consumerism, to simplicity ‒ honesty ‒ in speech.
Quakers

detested that which is common, to ask for more goods than the market
price, or what they may be afforded for; but usually set the price at
one word (Walvin, 1998:32)

Quaker’s were renowned for their charity (Cookson (2003);
Walvin (1998:81‒90))
and the norms sincerity, reciprocity and charity are captured in
their approach to lending, encapsulated in their proverb

“Well, Friend”, said the Quaker Banker, “Tell me the answers to
these questions so that I may help you in your projects, for you have
opportunities: Firstly, how much do you seek to borrow? For how long?
And how will you repay the loan plus its interest?” These are the
issues all good bankers must explore.

The Quaker experience suggests that the culture of sincerity
(commitment to truthfulness), reciprocity (commitment to fair pricing
and repaying debts) and genuine care for others generated a robust
financial network that was able to fund the growth of the British
economy between 1700 and 1850. Quaker influence waned towards the end
of the Industrial Revolution in the mid-nineteenth century. The 1844
Bank Charter Act undermined the network of ‘country’ banks that
served local businesses and lead to the merger, and centralisation,
of the provincial Quaker institutions. In the aftermath of this
centralisation a number of Quakers became associated with financial
malfeasance. The most famous example is the failure of Overend,
Gurney & Company in 1866. The firm was connected to the Quaker
banking dynasty, the Gurneys, and for the first half of the
nineteenth century dominated the discounting of Bills and was able to
underwrite other banks during the Crisis of 1825. Its failure was a
result of speculative investing in the 1850s exposed in the Panic of
1866 and the refusal of the Bank of England to underwrite it. In the
distributed financial network before 1844 the stability of the system
rested on inter-personal relationships and trust, the Quakers’
doctrine nurtured trust and on it rested their financial success.
After 1844 the stability rested on the centralised decision making of
the ‘lender of last resort’.

In the pursuit of efficiency, banks, both retail and commercial, have
replaced personal relationships with clients by automated systems in
the loan approval process. A retail bank will employ dozens of models
to convert data on a customer into a loan decision (only a dozen or
so models are used in commercial lending). This has seen the
emergence of the ‘credit risk modelling’ profession that
develops, maintains and interprets the algorithms.

While many models appear to use the same data to make similar
decisions they often deliver contradictory results. Lending managers,
confronted with a diversity of results, tend to focus on a single
model to deliver ‘objective truth’ without investigating why
others deliver different answers. Founded on algorithms, the process
cannot be sincere (it can be objective/reciprocal) and as a
consequence the borrower and lender are alienated. The bank’s task
is to optimise the ‘harvesting’ of loans and is devoid of
charity.

Financial institutions understand that using data from social media,
‘Big Data’, will enhance the algorithms, but are prevented from
doing so by European Union and U.S. legislation. However, ‘the gods
punish us by giving what we pray for’ and, in the event that such
data could be used it is difficult to see how existing banks would
survive in competition with social media platforms that started to
offer loans. This suggests that the survival of existing retail banks
does not depend on their ability to implement new technologies, but
their ability to communicate meaningfully with their clients1.

This account leaves open the problem facing contemporary finance: how
to support a financial culture that nurtures trust in a pluralistic
society, not centred on Quaker doctrine?

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About Me

I am a Lecturer in Financial Mathematics at Heriot-Watt University in Edinburgh. Heriot-Watt was the first UK university to offer degrees in Actuarial Science and Financial Mathematics and is a leading UK research centre in the fields.

Between 2006-2011 I was the UK Research Council's Academic Fellow in Financial Mathematics and was involved in informing policy makers of mathematical aspects of the Credit Crisis.